Market Segmentation: Types, Importance, Examples, Process, Bases!
Answer 1. Notes on Market Segmentation:
For a focused marketing program, market segments should be based on certain clear-cut variables, like geographic, demographic, psychographic; behavioural, value based, volume based and benefit based.
An overview of these bases for segmentation is given below:
1. Demographic Segmentation:
It divides the market on the basis of age, sex, marital status, income, education, family-size, family life-cycle, occupation, religion, and nationality. Segmentation of customers on the basis of their demographics is quite old. Shaving creams, electric razors after-shave creams etc. are all meant for men. Lipstick, fairness cream, age-defying cream, nail polish, etc. are meant for women.
Married men/women behave differently than boys/girls. This type of segmentation from marketing point of view is withering away. For example, today Philips electric shavers are also targeted at women/girls. Lipsticks and nail polish by Lakme is targeted at 15-24 year group (mostly girls) more than the higher age groups.
Further, the small family, of course, can serve its needs by smaller packages of products. But larger and economy sized package are also purchased by small families because it is economical and also because the packaged product has an expiry date which is normally one year or above.
Even the question of age has been greatly challenged by adults and elders by resorting to hair-weaving, hair-dyes and trendy clothes. The advent of Internet has crossed all segmentations except those who have VSNL connection and those who have not; those who provide time, those who do not.
Thus, demographics as a basis for segmentation is working as a proxy for finding similarity in behavioural patterns. The shorter route to demographics is psychographic and behavioural segmentation.
2. Geographic Segmentation:
The region, the city size, its density whether urban, sub-urban or rural, and the climate (hot, humid, cold) matters a lot in segmenting the market on the basis of geographic segmentation. The main advantage of this segmentation base is that it reflects physical location of the market and it’s attending conditions.
For example, coolers are not normally sold in hilly areas (Kashmir, Shimla) or with hot and humid conditions (Kolkata, Kerala Coastal areas). Similarly, wool and woolen dresses are less desirable in Southern India and Gujarat than in Kashmir, Shimla and Delhi. Internet marketing has started eroding the geographic segmentation as basis.
3. Psychographic Segmentation:
This basis of segmentation is widely used by marketers. The important aspects of psychographic segmentation.
A person’s life style, social-class, culture and personality rest at his mind. But this basic instinct can be tapped by marketers when they appeal for their products. For example, one can think of breaking the old values of sticking to old products (and get them repaired) by getting rid of old ones.
Kelloggs wishes to do away with age old Indian habits at breakfast. Tatas sell common salt as Desh ka Namak by providing it a tinge of patriotism. Onida appeals ‘Neighbours Envoy Owners’ Pride and Thumbs-up says ‘Taste the thunder’ for tough personality.
Based on the personality trait of adopting new products, Rogers has classified consumers into the following five groups:
(i) Innovators:
These are cosmopolitan people who are eager to try new ideas. They are highly venturesome and willing to assume the risk of an occasional bad experience with a new product.
(ii) Early Adopters:
These are influential people with whom the average person checks out an innovation.
(iii) Early Majority:
This group tends to deliberate before adopting a new product. Its members are important in legitimising an innovation but they are seldom leaders.
(iv) Late Majority:
This group is cautious and adopts new ideas after an innovation has received public confidence.
(v) Laggards:
These are past-oriented people. They are suspicious of change and innovation. By the time they adopt a product, it may already have been replaced by a new one.
Proper understanding of psychographics of consumers enables marketers to better select potential markets and match the product image with the type of consumer using it. For example, women making heavy use of bank credit cards are said to lead an independent way of life and are concerned with their appearance. They tend to be liberated and are willing to try new things.
However, the psychographic segmentation is at the mind level. It might not click for marketers. The appeal is vague which is not easily manifested in consumer behaviour. For example, would one say that he buys Onida TV to make his neighbour envied? However, behavioural segmentation encompasses all difficulties of Geographic, Demographic and Psychographic segmentation.
4. Behavioural Segmentation:
Here the geographical, demographical or psychographical boundaries become irrelevant for marketers. The consumers are segmented on the basis of their behaviour through need-motivation, perception, learning-involvement, attitudes, occasions, benefits, user-status, usage-rate, loyalty status, and buyer readiness stage.
Behavioural segmentation is based on the consumer response to his requirements. The way customer’s response is addressed, and the way the products actually help them to achieve what is demanded from it, both belong to the basis for their classification.
For example, Aptech studied the psychological motivation of customers to identify segments —it focused on those who were creatively inclined, looking for careers in advertising, design, media, fashion, theatre, film-making, or textile-and-interior designing and targeted the 18-25 age group.
5. Value-Based Segmentation:
The marketing concept prescribes that segmentation should be the outcome of a match between the products’ features and the customer’s needs. The new postulate suggests that marketers must arm themselves with a new parameter for partitioning their customers’ profitability. The marketers should really be segmenting their customers so as to isolate those who contribute the most to their profits.
The marketers must calculate Total Lifetime Value of their customers and discount it to arrive at the net present value.
Customer’s Value:
The benefits of Value-based segmentation are as follows:
(i) Increased returns from lower investments.
(ii) Resources can be focussed squarely on the most profitable customers implying that the marketer would be able to provide best technology, best value, best features, there will be no shift in customer priorities i.e., customers would always require some product from the same marketer.
(iii) The losers will be those marketers who under-invest in high-value customers and over-invest in the low-value customers. This will mean creation of product features and marketing strategies that do nothing for their best customers.
The limitations of value-based segmentation are as follows:
(i) No focus on market share except on most profitable customers.
(ii) Today’s most valuable customers might not include prospective customers and thus it would mean wrong focus.
(iii) Even this base calls for first gaining the customer’s value and then assess him.
6. Volume Segmentation:
Under this, consumers are classified as light, medium and heavy users of a product. In some cases, 80 per cent of the product may be sold to only 20 per cent of the consumers. Marketers can decide product features and advertising strategies by finding common characteristics among heavy users. For example, airlines having ‘Frequent Flyer’ are using user rate as the basis of market segmentation as concentration on heavy user group increases profitability.
The marketers should also pay due attention to light users and even non-users. The non-users may consist of two types of people—those who do not use the product, and those who might use it. Some may change over time from a non-user to a user.
Those who do not use due to ignorance may be provided extensive information. Repetitive advertising may be used to overcome inertia or psychological resistance. This is how non-users can gradually be converted into users.
7. Benefit Segmentation:
The main benefit sought in a product can also be used as a basis to classify consumers. High quality, low price, good taste, speed, sex appeal are some examples of benefits. For example, some air travellers prefer economy class (low price), while others seek executive class (status and comfort). Some consumers of toothpaste give greater importance to freshness while others prefer taste or brightness of teeth.
Consumer behaviour depends more on the benefit sought in a product/service than on demographic factors. Each market segment is identified by the major benefits it is seeking. Most buyers seek as many benefits as possible. However, the relative importance attached to individual benefits differs from one group to another.
Answer 2. Effective Market Segmentation [BBA Notes]:
In order to be effective, the market segmentation should fall into following six criteria:
1. Identity:
Marketer should develop some criteria on the basis of which it can classify the individuals into segments. Each segment is different from other segments due to the needs and preferences of its customers. There must be clear cut differences between segments. All the members of the segments should be clearly identified with similar behaviour characteristics.
2. Accessibility:
The marketer should be able to reach the selected segment in regards to promotion and distribution. To enable accessibility of goods and services, there should be use of appropriate marketing strategies. In regards to accessibility, distribution channel should be such that the product easily reaches its segments at affordable price; while the promotion channel should be such that the information about the product reaches the segment effectively and clearly.
3. Responsiveness:
Consumers in a given market segment must react to changes in any of the elements of marketing mix. Success of products in the markets depends upon whether they meet consumer or organizational needs. Consumer’s decision in regards to purchase or not to purchase a product determines the performance of the product in the market.
4. Substantiality:
The segment size should be large enough to make the targeting of that segment profitable i.e. there should be enough potential buyers in the segment in order to cover the production and marketing cost of the company. Profitability depends upon the number of people in the segment and their purchasing power. The segment size should not be too small or too large.
5. Nature of Demand:
Nature of demand refers to difference in amount of quantities demanded by various segments. In this case, segmentation is required only if this difference is large enough in terms of demand.
6. Measurability:
Measurability can be defined as the degree to which the size and purchasing power of segments can be assessed. It should enable the marketer to measure the changing behaviour pattern of consumers i.e. the variables involved in segmentation should be measurable.
Answer 3. Lecture Notes on Market Segmentation:
Segmentation is grouping of customer with similar features, who have similar expectations regarding product.
It can be made on the basis of: 1. Non Behavioural Features 2. Consumer Responses- Behavioral.
1. Non Behavioural Features:
Customer personal characteristics are not considered for this division.
Non-behavioral i.e., features not personally connected with the customers may be on the basis of following elements:
1. Geographic Segment:
Customers may be grouped on the basis of Geographical features. Such kind of grouping may be based on geography. Each region has its own specialties. E.g. Plain land, Hilly area, Coastal Regions, Desert. Along with this the level of infrastructure development of the region i.e., quality of roads, logistics, transport, rail line, coastal route, warehouse facility will influence the kind of product demanded in that area.
2. Global/Regional/National/Local:
In global segment Entire customers may be categorised as one unit, without differentiating between them and same product may be offered. In case of Pepsi and Coke the same soft drink is offered worldwide. Similarly Microsoft also does not make difference between its global customers when it is marketing its PC’s.
In case of regional segmentation customers worldwide may be segmented on the basis of regions. Ex. American, European, Australian, Arab countries Asian Countries etc.
America and Europe are were developed with better infrastructures. Needs and profile of customers of these areas differ with customers of African and Asian countries, that are less developed. Products have to be tough, durable, sturdy and long lasting in countries like India, China or Pakistan, due to tough geographical condition. Whereas countries of America, Europe may insist on more speed, better quality precision accuracy.
This very much applies in case Automobiles its spares and Electronics. Ex- Nokia designs mobiles for Indian market that can handle the dust, temperature conditions whereas these features may not be necessary for western market that are dust free and no hot temperature.
Similarly a tyre manufacturer has to consider road conditions, heat, temperatures, road breaks, application of brakes in driving which is common in Asian countries and uncommon in western countries.
Size of Automobile and its capacity is less (Car, Trucks, Motorcycles) etc., in countries like India due to traffic and road conditions, whereas countries like Australia, America, Germany have vehicles with bigger capacities due to their geographical features.
Regions with cold climate, coastal, area, high temperature zones require different kind of products due to their climatic conditions. High neck, full sleeves, Full Suit, Sweaters, i.e., warm, clothes are necessary for cold climatic regions. Region with high temperatures zone needs cotton and loose garments.
Saree, Dhoti, Lungi is popular in South India, Where as North India or European countries as they have cold climate, need garments that can shield them against cold. Refrigerators, coolers, Fans are necessity in South India, African conditions wherever these is high temperature and those kind of products are to be marketed.
A marketer has to keep into consideration geographical condition of region to which goods are to be marketed. Products are to design to match the geographical conditions.
3. Demography Segment:
Demography is study of population mix of a region. Population can be segmented on the basis of Age – Kids, Adolescents, Young, Matured, Old and aged.
Each segment has specific needs of goods, cosmetics, like Soap, Powder for kids has to be smooth (Johnson and Johnson have specialized in its Adolescents and young customers prefer trendy, fashionable products Jeans, Smart Phones, Bikes (Pulsar, Karizma) on the other hand matured people may insist on mobile, two wheelers that are safe, comfort and economical (Hero).
Income Levels:
People may be segmented as poor, Middle income and rich category. Income levels determine kind of products used particular income segment.
Poor people are price conscious; insist on quantity, durability and multiple use of a product to be used by all members of family. A firm that has to market to such segment has to be aware of this fact in manufacturing and marketing.
People of middle income want value for their money. They will spend on those commodities which offer value for their product. They spend more on comforts and are attracted by offers like discount, sale, credit and installment facility. Big shopping malls, thrive and develop due to middle income people. Percentage Rich people consist 5 to 10% of population of a nation, they spend more on luxuries. They are quality conscious; expect comfort in delivery of product.
4. Gender:
Male and Female segment have different demand from the product. Their physiological features, living styles will make them to need different kind of product. A women prefers Moped and men motorcycle.
Beauty cosmetic segment also need separate segmentation (Lipstick is entirely for women) Soap, Shampoo, Body Spray are created separate to cater to needs for men and women separately Ex- Head and Shoulder for men and women, Fair and Lovely for Women, Fair and Handsome for Men.
Within female, further segmentation can be made as to working, housewife, divorced, Bachelor. A study has revealed that 50% of Women in America are single. In India number of working women is increasing Need and requirement of these category of women are different compared to housewife. They like to be independent comfortable, career minded and educated and willing to spend as they have their independent income.
Agriculture, Business, Profession like Doctor, Engineers, Lawyers and jobholders are the popular segments under this category. The kind of goods people use is influenced by their occupation. Whereas businessmen goes for a car, farmer for a tractor an employee for a two wheeler etc.
The magazines and paper one reads, channels watched, places one visit etc. are dependent on occupation. (Regular magazine and newspaper for a common man), Business line, Economic times for businessmen, (Inside-Outside for an Engineer’ GRIHA – SHOBHA, Femina for women etc.
6. Psychographics:
If means science of using psychology and demography together to understand the needs of different groups of population. Segment them under one category, depending on common needs, so that a product can be designed to and marketed to match their wish list.
Kids can be classified under girl and boy and further rich and poor urban and rural. Rich girls prefer toys like ‘Barbie’ boys prefer Leo and Mattel toys. Bicycles are designed separately for boys and Girls with or without gear etc.
Adolescent of urban college going Girls and Boys have their own needs of commodities like their Dress (Jeans, T-Shirt, shoes) Fast food, Bikes (Hero, Karizma, Bajaj – Pulsar) and smart phones (Samsung Galaxy, Lumia etc.). They like trendy music like partying, celebration etc. Needs of rural and semi – youth urban youth are simple and economical like Bicycle, normal and economic dress etc.
People are classified on the basis of behaviour characteristics like thinkers, Innovators, Introvert, Extrovert Dynamic, Social, Status conscious, Enthusiastic, Subdued, calm, Hot tempered, Easy going, Extravagant, Economical, health conscious, family liking etc., These personal characteristics influence their consumption habits and kind of product they expect from market.
People who are health conscious, family caring, calm, not risk, taking, believe in safety products like Health Insurance, Healthy foods (Saffola, Kent, Aquaguard Water system) Bottled water, Vitamin and protein foods (Bournvita, Re-vital, Zandu Pancharist) People who are status dignity, oriented wish to present themselves in a dignified manner (Raymond’s) Extravagant, Extravert, Dynamic prefer Jeans, Trendy dress, powerful Bikes, Jeeps, SUV’s partying etc.
People with multiple psychographics traits/features are increasing. Rising income levels, education, living single, bachelor etc., are creating complex kind of needs. Variety of products are be created and marketed to meet need of such category of people.
2. Consumer Responses- Behavioral:
People under these categories are segmented on the basis of responses or behaviour towards a product. These are personal that is connected to person.
Segmentation of customers under these categories is on following criteria’s:
1. Benefits:
Customer may define a product on the basis of benefits they derive from such product.
Benefits may be perceived or defined in terms of:
i. Quality:
Willing to pay a higher price for better quality, e.g. Dove soap, Swift car, LED TV etc.
ii. Economy:
Customers in this category demand value for the money. The product should be durable, reasonable price. Ex- Liril Soap, Maruti 800.
iii. Specialty:
Customer may expect some special or unique feature in the product that may attract them to buy the product. Ex- 3D TV, Smart Phone or Mobile with special applications.
iv. Service:
Customer appreciates service during and after sale as the criteria for purchase of a product. This criteria plays important in case of Electronics, Automobiles. Large network of retail outlets and service centers will give confidence to customers. Ex- Maruti has large network of retail outlets and service centres that is its one of positive points for Indians preferring maruti brand of cars.
2. User Status:
Customer can be classified as heavy or frequent user medium and light users. Regular and frequent users expect durability, consistency in the performance of the product. They expect that product should be reliable. In case of electronics, home appliances, Automobiles this feature counts heavily. Washing machines, two wheelers, cookers, Gas stoves, that the frequently used must be reliable.
Customers who are not frequent users of a product are attracted by colour and campaign, offers like discount etc.
3. Loyalty:
Customers may be classified as hard care loyal and shifting loyalties.
Customers develop strong loyalty towards a product due to its continuous use and perceived utilities of its product. Ex- Colgate Tooth paste, Maruti cars, Sony TV etc. Firms have to take care of needs of such customers and it has to update the product to match the changing needs of customers. Ex- Colgate has introduced multiple brands to maintain the existing customers and meet that changing needs i.e. Colgate Total, Mint, Gum protection avoids cavity, freshness, whiteness etc., different brands of Colgate are introduced.
Similarly Maruti has introduced variety of brands starting with 800, Alto, Swift series, Wagon R, A-Star etc., to satisfy its loyal customers who have differing needs. It has also started ‘true value’ where one can exchange old for new car’ there by maintaining customer relationship.
Customers who have shifting loyalty will not stick to particular brand. They are impulsive buyers. A firm that has to cater to the needs of such customers must take risk of understanding needs of such customers and design the product. Firms that want to expand their market base take this risk. Ex- maruti in order to expand its base introduced ‘Sx4’ and ERTIGA in SUV and luxury models.
4. Attitude:
People can be brandy categorised in three categories:
1. Positive, Enthusiastic, impulsive- People of such character like new products, expect variety. They experiment with their taste.
2. Negative, pessimistic kind of people are not active buyers, there may go with the old brands.
3. Moderate people who are matured not over enthusiastic are careful buyers. Their buying behaviour is balanced, they make thorough enquiry before buying product. They ensure that product matches their taste.
Answer 4. Short Notes on Effective Market Segmentation:
While dividing the whole market into small segments the following criteria should be followed:
1. Identifiable:
The marketing manager must have some means of identifying members of the segment—i.e., some basis for classifying an individual as being or not being a member of the segment. There must be clear differences between segments. Member of such segments can be readily identified by common characteristics which display similar behaviour.
2. Measurable and Obtainable:
The size, profile and other relevant characteristics of the segment must be measurable and obtainable in terms of data. If the information is not obtainable, no segmentation can be carried out. For example, customers can be segmented on the basis of their life styles.
3. Substantial:
The segment should be large enough to be profitable. For consumer markets, the small segment might disproportionally increase the cost and hence products might be priced too high. This might make the segment non-profitable. However, for business markets even a single customer might mean big business as for example construction of a ship. Size of the segment may also depend on the purchasing power of the target customers.
For example, marketers of luxury goods may appeal to small but wealthy target markets whereas marketers of cheap consumption goods may sell to large number of persons with low purchasing power. The idea is that enough potential buyers must exist to cover the costs of production and marketing required in that segment.
4. Accessibility:
It must be possible to reach different segments in regard to both promotion and distribution. In other words, organisation must be able to focus its marketing efforts on the chosen segment. Segments must be accessible in two senses. First, firms must be able to make them aware of products or services. Second, they must get these products to them through distribution systems at a reasonable cost.
5. Responsiveness:
A clearly defined segment must react to changes in any of the elements of the marketing mix. For example, if a particular segment is defined as being cost-conscious, it should react negatively to price rises. If it does not, this is an indication that the segment needs to be redefined.
6. Actionable:
The segments which a company wishes to pursue must be actionable in the sense that there should be sufficient finance, personnel, and capability to take them all. Hence, depending upon the reach of the company, the segments should be selected. Apart from the above requisites, the segment must have growth potential, be profitable, carries no unusual risk, and has competitors who do not fight directly with the product or brand.
Answer 5. Market Segmentation:
Market segmentation can be done on the following bases:
(a) Geographic;
(b) Demographic Segmentation;
(c) Psychographic; and
(d) Behaviouristic.
(a) Geographic Segmentation:
The segmentation is done on the basis of areas such as nations, states, regions, cities etc. Most of the national manufacturers split up their sales areas into sales territories either state-wise or district-wise. Generally, segmentation is done as APEC (Asia Pacific Economic Cooperation), Europe and US etc.
(b) Demographic Segmentation:
Under this method consumers are grouped into homogeneous groups in terms of demographic similarities such as age, gender, education, income level etc.
(i) Age – The choice and preference of brands and products change with age. This is one of the most common types of segmentation done by the marketers. Products like Johnsons & Johnsons baby products, Friends adult diapers, Cartoon channels etc. are the products related with respect to the age of the target markets.
(ii) Gender – Usage and interest in a product itself classifies this basis of target market. Products like cosmetics, suit lengths, shaving creams etc. have their different markets. Also there are different companies who are deliberately creating this difference, for example – Emami Fair & Handsome cream for men, Garnier Men Power light fairness face wash for men etc.
(iii) Family life-cycle – There are seven different stages of a person’s family life-cycle, viz.,
(a) Young, single, earning —products like Laptops, i-pads, Vacations, etc.;
(b) Young, married, no children — example, Home loan, Vacation packages, Home decor, Home appliances etc.;
(c) Young, married, youngest child under six — example, Child care plans, Day care centres, Investment opportunities etc.;
(d) Young, married, youngest child over six — example, Education plans, Children clothing, Toys, Vitamin tablets etc.;
(e) Older, married, with children —e.g., Health-care plans, Pension plans, Education loans etc.;
(f) Older, married, no children under eighteen —e.g., Wedding planners, Ornament buying, Retirement plans etc.; (pit) Older, single —Medical bills, Social services etc.
(iv) Income – There are three income levels — lower, middle and upper. Marketers segment their products accordingly, for example, Tata Nano is for lower class, Swift Dzire is for middle class and Mercedes Benz is for upper class.
(v) Generation – Every generation has its own desires and preferences, for example, kids under 10 will watch Cartoon Network or Disney channel; teenagers will watch MTV, Channel V;
Young generation between 20-30 will like to watch Discovery, Star movies, HBO etc.; in the age bracket of 30-50, people generally like to watch family dramas, therefore, Star plus, Zee TV and older retired people might watch Sanskar and Bhakti Channels.
(c) Psychographic Segmentation:
In this segmentation, buyers are divided into different groups on the, basis of personality and life-style. Marketers create brands to suit consumer’s personality, for example, Thums Up tag line — “Aaj kuch toofani kartey hain”, clearly indicates that it is for people with a daring personality.
Life-styles also influence product interests. Brands like Kingfisher —”Live life king size”, focus their products around the statement.
(d) Behavioural Segmentation:
In this case, buyers are divided into groups on the basis of their knowledge or attitude towards the use of product.
(i) Purchase occasions – Buyers can be differentiated according to the occasions that develop a need to buy a product. For example – Air travel is related with vacations.
(ii) Readiness status – Buyers can be classified according the state of readiness to buy a product, for example, immediate buyers, trial activity, highly qualified enquiries, loosely qualified enquiries.
(iii) User status – Markets can be segmented into groups of non-users, ex- users, potential users, first times users and regular users of a product.
(iv) Usage rate – Marketers can also segment the market on the basis of light, medium and heavy users of the product.
(v) Loyalty level – Buyers can be divided into groups according to their degree of loyalty with respect to a particular product —completely loyal, partially loyal and so on. For example, cigarettes, wines, newspapers, tea, coffee etc. are the products which generally have a loyal customer base.
Answer 6. Market Segmentation:
The segmentation of a market is done by focusing on the characteristics of customers. The customers with same characteristics are formed within a group.
Now, let us discuss the basis of market segmentation.
1. Geographic Segmentation:
In geographic segmentation, a market is divided into different geographical areas on the basis of cities, states, and countries. In this type of segmentation, an organization needs to study the respected geographical area. The organization should offer products as per the needs and choice of local inhabitants. For example, PVR in Delhi plays movies in Hindi and English; whereas, PVR in Bangalore plays movies in Hindi, English, Kannada, Tamil, and Telugu.
2. Demographic Segmentation:
Demographic segmentation classifies the market into segments based upon the demographic attributes, such as age, gender, income, occupation, religion, race, and social class. The tastes and preferences of customers are influenced by their demographic attributes.
Some of the demographic attributes are as follows:
a. Age:
Divides the market into different stages based on the age and natural life cycle of a human being. A child has different taste and preferences as compared to his/her elders. The organizations use different communication methods to approach the customers of different age groups. For example, a garment shop has different segments for the customers of different age groups, such as kids, teenagers, men, and women sections.
b. Income:
It segments the market on the basis of earnings of customers. This segmentation may or may not reflect the most accurate buying behavior; however, it is widely practiced by marketers. This type of segmentation is highly contradicting in nature for an organization going global as different countries have different purchasing power.
An individual from low-income group in the United States may have higher purchasing power than a high-income group individual in Bangladesh. Thus, it may not be a foolproof approach for an organization; however, it is the most common one. Several housing societies in India have divided the market as per the income group of customers. For example, Low Income Group (LIG), Medium Income Group (MIG), and High Income Group (HIG) flats.
c. Gender:
It helps an organization to segment its product according to male and female. For example, some years back Fair & Lovely used to make beauty products only for women. Now, it also offers a beauty product, known as Fair & Lovely Menz Active, to men.
d. Social Glass:
It acts as an important element to segment the market on the basis of different classes in society. The buying behavior of customers is based on its perceived social class. There is a thin line between income-based and social class segmentation. For example, the automobile industry in India has targeted its marketing strategy based upon different social classes. Maruti 800 was specially manufactured to target the middle class customers of India.
e. Generation:
It plays an important role in segmenting the market on the basis of age of the customers. The tastes and preferences of the customers change with the changing time. The marketers design products on the basis of different requirements of different individuals. Today’s generation demands stylish looking and technical products. For example, Raj’s father would prefer buying a Hero Honda; whereas, Raj would prefer buying a Bajaj Pulsar or Apache.
3. Psychographic Segmentation:
Psychographic segmentation involves segmentation on the basis of lifestyle, values, and beliefs of an individual. The individuals always prefer a product or service that gives them a better feeling of satisfaction. They want a product that suits their values and character.
Various factors that come under psychographic segmentation are as follows:
a. Lifestyle:
It differentiates individuals on the basis of their habits, income group, and social status. The individuals buy those products that match their lifestyle. One can easily differentiate between urban and rural lifestyles. The individuals of urban and rural lifestyles have same needs and wants but their choice is highly different.
For example, Indore has a cosmopolitan lifestyle as compared to Guna, which is a village. A youth from Guna will prefer to go to a dhaba; whereas, the youth from Indore will prefer to go to an air-conditioned restaurant.
b. Personality:
It refers to characterization of individuals on the basis of their nature, such as aggression and extroversion that determines their buying behaviours. It is very difficult for marketers to assess the personality traits of an individual. However, the marketers position the product in such a manner that it matches the different personality traits of individuals.
The marketers try to match their products with the personality of targeted segment. For example, Mountain Dew promoted itself as a drink for the adventure lovers. Their advertisements give a message of becoming fearless and tough. Dar ke aage jeet hai, the punch line of Mountain Dew targets individuals with aggressive and risk-taking attitude.
c. Values:
It affects the attitude of customers towards the product in the long run. This basis of segmentation often helps in making customers loyal and satisfied. The values are connected with the thoughts and beliefs of customers. These are very important to develop communication programs that affect the thoughts of customers.
For example, TV serials and movies are often based on value-based customer segmentation. Most of the saas-bahu serials on the small screen are a very hit because they convey the importance of Indian cultural values and focus on the joint family concept.
4. Behavioural Segmentation:
Behavioural segmentation implies segmentation on the basis of behavior of customers towards a product. This helps the marketers to know the past purchases of a customer. This type of segmentation is useful in case when a customer buys the product regularly from the marketer. In that case, a marketer has to wait to know their behavior towards his/her product.
The variables that help in segmenting the market according to the behavior are discussed as follows:
a. Benefits:
It refers to the advantages of the product for customers. The benefits of the product attract the customers to purchase the product on a regular basis. For example, Airtel studied the benefits of its product given to its customers. It analyzed that the college goers prefer to call at night and stay connected for long hours. Airtel launched a special night calling card with a lucrative offer of Re 1 per 20 minutes after 11 PM at night.
b. Occasions:
It divides the customers based upon their varied purchase requirements during various occasions. For example, Cadbury launched Celebration’s Rich Dry Fruit Collection with special ingredients as a festive offering for its customers.
c. Usage Rates:
It classifies products according to their use by the customer. The usage of a product can be divided into a heavy, medium, and light usage. The marketers mainly focus the users who need products for heavy and medium usage. For example, various organizations offer membership programs to their regular customers that help them in availing the discounts on products.
d. Loyalty Status:
Loyalty status includes four types, namely, hardcore loyals, split loyals, shifting loyals, and switchers. The marketers analyze customers according to different loyalty status and apply a suitable marketing strategy. For example, Citibank offers different balance transfer options at a lower rate of interest on its credit cards to attract the loyal customers of other banks.
The different type of loyalty status of customers is discussed as follows:
(i) Hardcore Loyals:
It refers to the customers who stay with the same brand for a very long period. They are very loyal and emotionally attached to the brand.
(ii) Spilt Loyals:
It refers to the customers who prefer to buy two or more brands of a product.
(iii) Shifting Loyals:
It refers to the customers who keep on changing their brand at frequent intervals.
(iv) Switchers:
It refers to the customers who have no brand preference and seek variety in products.
Answer 7. Bases of Segmentation:
A company should segment its market only if it is a profitable proposition. The second criterion is will the company be able to serve the segmented market economically? The size of the market segment should be optimal. Too large or a too small a segment would not be economical.
Companies should be able to measure the market segments i.e., the number of segments it is planning to target and also the size of each segment. The accessibility of the segments is also very important for the marketers. Segments that are inaccessible due to various environmental issues such as government regulations, legal issues, etc. will be of no use to a company. Consumer markets are mostly segmented based on the geographic, demographic and psychographic features of the customer.
Main determinants of segmentation are explained as given below:
1. Geographic Segmentation:
Geographic segmentation is a common feature of multinational and global companies for products which are related to common use and frequently used items market is divided into small parts, it is beneficial for physical distribution of products. Many such companies have regional and national marketing programmes which alter their products, advertising and promotion to meet the individual needs of geographic units. For a pharmaceutical company geographical segmentation is most suited segment because it require intense distribution network. Geographic segmentation tries to divide markets into different geographical units.
These units include:
a. Regions- East, west, north, south, major metropolitan areas, urban areas, suburban areas and rural areas.
b. Countries- For MNC’s markets can be segmented on the bases of countries, categorized by size, development or membership of geographic region.
c. City/Town size- e.g. population within ranges or above a certain level.
d. Population density- e.g. urban, suburban, rural, semi-rural.
e. Climate- e.g. Northern, Southern.
2. Demographic Segmentation:
In this type of segmentation, the market is divided into groups based on demographic attributes such as age, gender, income, occupation, religion, race, nationality, social class, family size, family life cycle, etc. It is highly effective to segment the market on the basis of demographic variables because most customers’ tastes and preferences are based on these attributes and they are also easy to measure. Gender, age, income, and education level are common demographic variables. Some brands are targeted only to women, others only to men. Products related to fashion and style is directly influenced by demographic characteristics.
Education levels often define market segments. For instance, private elementary schools might define their target market as highly educated households containing women of childbearing age. Demographic segmentation almost always plays some role in a segmentation strategy. Income factor is the most important factor which influences total demand of products and services.
The following are some of the demographic variables used to segment the market:
(a) Age and Life Cycle Stage:
The tastes and preferences varies from customer to customer it is dynamic in nature and keeps changing with time. For example, an 8 year-old boy might like chocolates very much but may slowly start disliking it after he attains the age of 20 years. Interest of a child in video games in teenage group would not remain same when he entered in age group of thirty plus. Need and requirements of a single person and a married person are different.
(b) Gender:
Many products like garments, jewelry, wristwatches, magazines, etc., are segmented according to gender. There are certain brands, which are positioned exclusively for a specific sex. For instance, Raymond is a brand exclusively for men. Gillette targets men with its range of shaving accessories, diamond jewelry by Nakshatra exclusively for women. There are also cases where products were manufactured to suit one sex but were later on being used by both the sexes like fair and lovely for man and woman.
(c) Income:
Marketers tend to segment products and services such as refrigerators, automobiles, travel, household appliances etc., on the basis of income groups. This segmentation may not completely reflect the buyer behaviour of the customer. Now even the most middle income group customers have easy access to luxuries such as cars because of the soft loans and installment facilities extended by financial institutions. Companies like HUL and Godrej have wide range of product to cover different income segments.
(d) Social Class:
Social class segmentation is influenced by customer choices of automobiles, interior decorations, reading habits, clothing preferences, etc. The tastes and preferences of the social classes also changes according to income, education and occupation. Generally marketers divide segment into three categories low, middle and upper class.
3. Psychographic Segmentation:
Psychographic segmentation, based upon different variables like consumer attitudes, values, behaviours, emotions, perceptions, beliefs, and interests. Psychographic segmentation is a legitimate way to segment a market. Though the markets segmented on the basis of demographic variables have common characteristics such as sex, age, income, etc., their psychographics such as motivation, values, belief, lifestyle, personality, etc., can differ significantly buying behaviour of customers are highly depends on these factors.
Life style and attitude towards a products and services have direct impact on demand. A person having Mercedes, wearing a Wood land shoes, using Parker pen definitely reflects his lifestyle. Psychographic segmentation helps marketers to understand buyer behaviour better and helpful in designing promotional programs.
Following are the variables which affects the Psychographic segmentation:
(a) Lifestyle:
Different people lead different lifestyles depending on their income, social groups, occupation, education etc. People usually buy products, which suit their lifestyle. For example, sportspersons always like to buy trendy products while top managers usually buy formal wear. As young person living in metro city lead a different lifestyle from their counterparts in villages and small towns, their needs, wants, tastes and preferences are totally different. Teenagers are more concern to electronic gadgets like cell phones whereas top executive wants to have luxury car.
(b) Personality:
Personality characteristics such as aggression, masculinity, extroversion, etc., also influence the buyer behaviour of individuals. It is difficult to measure personality traits accurately as clinical tests have not been developed to check these traits. When marketers communicate personality characteristics to customers, they communicate only those characteristics which most customers will view positively. Marketers presume that people, who either have a particular characteristic or aspire to have that particular characteristic, will be influenced positively to buy that particular brand.
(c) Values:
Values are gained by society and culture. Values affect customer behaviour in the long run and marketers believe that if the values of customers can be influenced, their impact on the customer desire longer period. Marketers can use values and beliefs to segment the markets.
4. Behavioural Segmentation:
Organizations can segment market on the basis of behaviour that customers show towards the usage of the products. This type of segmentation shows the purchase pattern in the past. Behavioural segmentation is most suitable for product driven organizations. But its usage is restricted when new customers come to the marketer. Various variables for segmenting market on the basis of the purchase behaviour of customers are occasions, benefits, user status, usage rate, loyalty, etc.
Benefit segmentation requires marketers to understand and find the main benefits customers look for in a product. Benefit segmentation can be used to position various brands within the same product category. An excellent example is the toothpaste market where research has found four main benefit segments – economic; medicinal, cosmetic and taste. Behavioural segmentation divides customers into groups based on the way they respond to, use or know of a product.
Behavioural segments can group consumers in terms of:
(a) Occasions:
It refers when a product is consumed or purchased. Markets can also be classified on the basis of various occasions that customers encounter because people need different products for different occasions. Companies can target their products of special occasions For example Maggi and Kurkure – any time food, Cadburys chocolate in celebration and festivals Archies came out with special cards for Mother’s Day, Father’s Day, Valentine Day, etc.
(b) Usage:
Some markets can be segmented on the basis of frequency and quantity consumed by customers; they can split market into light, medium and heavy user groups. Marketers are usually attracted to heavy users rather than other types of users. There are discount for frequent travelers.
(c) Loyalty:
Loyal consumers – those who buy one brand all or most of the time – are valuable customers. Many companies try to segment their markets into those where loyal customers can be found and retained compared with segments where customers rarely display any product loyalty. Companies offer loyalty incentive to their regular customers this is common in service sector. Examples are the holiday market and hotels.
5. Price Segmentation:
Price segmentation is common and widely practiced. Variation in household incomes creates an opportunity for segmenting some markets along a price dimension. If personal incomes range from low to high, the reasoning goes, and then a company should offer some cheap products, some medium priced ones, and some expensive ones. This type of price segmentation is well illustrated by the range of automotive brands marketed by Maruti Suzuki, Maruti 800 for entry group, and Maruti Swift for high income group.
Answer 8. Market Segmentation:
Market consists of buyers who differs in various respect i.e. customers are multi-dimensional and any dimension or factor may be used to segment the market.
Market can be divided into two as:
1. Consumer market.
2. Organisational market.
Consumer market is the market consisting of buyers who purchase product for final consumption. These products do not go for further processing. Organisational market on the other hand consists of those buyers who are not the ultimate users and these include individuals, firms and government agencies.
These buyers purchase goods either for resale purpose or use it for producing other goods or services. Thus, these two different markets require different basis of segmentation. The business firm may segment the market on one or more than one basis depending upon their requirement.
Market Segmentation for Consumer Market:
Consumer products are those products which are meant for final consumption by the consumers. These products do not go for further processing and are not purchased for resale purpose.
Consumer market can be segmented on the basis of:
(A) Consumer characteristics.
(B) Consumer response.
Characteristics of consumers relating to his liking, wants etc. is very essential for segmenting the market. Comprehensive knowledge about what are his important buying criteria, how much they are willing to spend, why the product is repurchased, how the consumer use the product etc. is essential to segment the market.
This includes:
(1) Geographic variables
(2) Demographic & Socio-economic variables
(3) Psychographic variables.
(1) Geographical Variables:
A consumer product can be segmented on the basis of geographical factors such as region, climate, towns, countries etc.
i. On the basis of region – On the basis of region the market can be segmented as east zone, west zone, north zone, south zone and central zone.
ii. On the basis of climate – On the basis of climate the market can be segmented as hot climate market, cold climate market, humid climate market, rainy climate market etc.
iii. On the basis of density of area – On the basis of density of area market can be divided into urban market, semi-urban market and rural market.
iv. On the basis of cities – Consumers market for a product can be also divided on the basis of cities as – metropolitan cities, big cities small cities and towns.
v. On the basis of country – The market can be also be segmented as national market, international market, European market, American market, South African market etc.
Segmentation of a market on the basis of geographical factor is useful where the customers are scattered over a vast area, production of the enterprise is on large scale and enterprise is able to arrange appropriate measures to make product available in these different segments.
(2) Demographical and Socio-Economic Variables:
The market of a consumer product can also be divided on the basis of demographic characteristics of the customers.
The bases on which demographical segmentation can be done are:
i. Age – Age is perhaps the most important criteria for segmenting a market. A market can be divided into four parts on the basis of age – (i) children; (ii) young; (iii) adults; and (iv) old. A successful marketing manager is one who understands the age group for which his product would be most suited and determines the marketing policies, pricing policies and advertising policies accordingly.
ii. Sex – On the basis of sex, the market can be divided into two parts (i) Ladies and (ii) Gents. As ladies and gents have different needs and attitudes the marketer can segment their markets on the basis of sex. Some products may be produced specifically for gents while some others specifically for the ladies such as lipsticks for ladies and men’s perfume for gents. While selling the product to ladies, the stress should be upon fashion, beauty, packing, colour etc. On the other hand, while selling the products to gents, stress should be upon durability, standard social prestige etc.
iii. Income – Income is another important factor affecting the nature, attitude, preferences and behaviour of consumers. Therefore, a market can be segmented on the basis of income of consumers. Consumers can be divided into three parts on the basis of income – (i) high income group, (ii) middle income group, and (iii) low income group. The customers of middle income group stress upon durability and utility of products. While the consumers of low income group stress upon the price and quantity.
iv. Family – A market can also be segmented on the basis of size of the family. A unit of family may be large or medium or small in size. The needs of every size of family are different. Refrigerators and cookers are produced in different sizes for the families of different size.
v. Education Status – Some particular products, mainly books and stationery are sold in the market on the basis of educational status of the consumers. A market can be segmented as under on the basis of education status- (i) primary, (ii) high school, (iii) intermediate, (iv) graduate, (v) post graduate. Different pricing policies and advertising policies may be adopted for different segments of the market.
vi. Caste or Religion – India is a country having a number of communities, castes, sub-castes and religions. The feelings, attitude and life style of the consumers of different castes and religions are different. Therefore a market can be segmented on the basis of these castes or religions.
Apart from these, demographic segmentation also includes occupation, density, nationality, language etc. which can be used for segmenting the market.
(3) Psychographic Variables:
A consumer market for product can also be segmented on the basis of psychographic factors such as- social class, life style and personality. Different customers buy the products due to different reasons; some may buy it because it adds to their social prestige and status, while some consumers buy a product because of its usefulness to them. Social class has a strong influence on the person’s preference in cars, clothes, home furnishing, reading habits etc. Life style has strong influence on the clothes, meals etc.
The responses of the consumer to a product, his knowledge about the product, attitude towards the product, his usage of the product are important basis for segmenting the market. The behaviour of the consumer is studied under consumer response approach to segment the market.
This includes:
(a) Product Benefits – Consumers are sub-divided on the basis of the benefits they seek from the product. These benefits may be the primary benefits or secondary benefits. For example, automobiles provide the primary benefit of convenience and secondary benefit of social status. Toothpaste is purchased not only for cleaning teeth but also for good taste and fresh breath.
(b) Product Usage – Also known as volume segmentation, here the market is segmented on the basis of the extent of the usage of the product. A regular user of the product may be heavy user, medium user or light user. Different policies have to be adopted for different user group.
(c) Loyalty Status – Market for a consumer product can be segmented on the basis of loyalty of consumer towards the product or a brand.
On the basis of loyalty there are following four types of consumers:
i. Hard core loyalist – They are the persons who buy only one brand every time. If the brand is not available in the market they stop using the product and never compromise with other product or brand. Their purchasing pattern will be A, A, A, A, A….., where A is the brand to which the consumer is loyal.
ii. Soft core loyalist – They are the persons who are loyal to a specific brand, but if these brands are not available they comprise with another brand and afterwards they again start consuming old brand. Their purchasing pattern will be A, A, A, B, A, A…., Where A and B are two brands which consumer purchases.
iii. Shifting loyalist – They are the persons who are loyal to a particular brand for some time and later they shift to another brand and become loyal to that brand. Their purchasing pattern will be as A, A, A, B, B, B, Where initially consumer is loyal to brand A and after some time he becomes loyal to brand B.
iv. Switchers – They are the persons who are not loyal to any brand. They want something different each time. Their purchasing pattern are A, B, C, D …, Where A, B, C, D are the brands which consumer purchase.
The main effort of the marketer after segmenting the market should be to retain loyal customer and convert non-loyal to loyal buyers.
(d) User Status – Markets can also be segmented on the basis of status of the user. Normally every user does not use every product offered to him. They may use some product, ignore some, use some regularly and use some of them in future. Accordingly, they may be classified as non-users, regular users, first time users, ex-users and potential users of the product. Companies by giving extensive information and boosting customers psychologically can retain the existing customers and attract the potential users.
(e) Occasion – Market can be segmented on the basis of occasions or situations when the consumer gets the idea of purchasing a product or makes a purchase or use a product. For example, Cadbury which was initially a chocolate for children has been extended for very auspicious and happy moments and time for celebration.
(f) Attitude – The consumer market can also be segmented on the basis of attitude of consumer towards the new product.
According to attitude there are following type of customers:
1. Enthusiastic – These type of customers are those who are enthusiastic about the product. They purchase every new product in the market.
2. Positive – These are the customers who have a positive attitude towards new product. They try to know what satisfaction they can derive from the product.
3. Indifferent – They are the customers who are not affected by a new product. They generally do not buy a new product.
4. Negative – They are the customers who believe that the product they are using is superior one and the new one is inferior one. They do not analyse the product, but have a mind-set that product which is offered is not good. For a marketer it is easy to convince a prospective buyer if he has enthusiastic or positive attitude, but for negative attitude it is a very difficult task or sometimes meaningless. Indifferent attitude customers can be changed with slight motivation.